Impact of Malaysia Budget 2013 on Small and Medium Enterprises - Assignment Example

Impact of Malaysia Budget 2013 on Small and Medium Enterprises Abstract The Malaysian budget 2013 takes into account diverse views and sources on the path of the Malaysian economy. It is fundamental to note that, the 2013 forecasts are used as instruments to conjure up and project the financial and economic impact of this budget on the country’s economy. The size of the Malaysian economy by end of 2013 is forecasted to stand at RM 1,064 billion and a 5.2 rate of economic growth (“Budget 2013,” 2012). Like other countries across the globe, Malaysia’s economy is built on a solid pattern of small and medium sized enterprises. It is imperative to note that, the 2013 Malaysian budget captured all sectors of the SME’s. Small and medium sized enterprises have had bigger challenges in their business performance, incursion and marketing, compared to the large enterprises. The Malaysian 2013 budget has given indicated considerable efforts to emphasizing on the need of SMEs in economic development, and vision 2020 of attaining an industrialized nation state (“Budget 2013,” 2012). The government policies through the 2013 budget initiatives provided financial support for the enterprises straddling across large and small enterprises, focusing on the youth and women through loans and financial support in investments across the local regions. The loans and funds have subsidized charges on interest rates, which the government is collaborating with financial institutions for easy access to the SMEs. The tax and non-tax incentives will reduce the expense of operation in enterprises consequently saving money channeled by enterprises from incentives (“Budget 2013,” 2012). The budget could also influence the SMEs through ICT infrastructure, entrepreneurship training to improve national GDP, revenue, investment, and enhance economic growth. Introduction The small and medium scale enterprises form the backbone of majority of the developing nations’ economy. These enterprises play a significant role in facilitating considerable growth of the economy; however, financial constraints and inhibiting the competitiveness nature, which pushes every entrepreneur and businessperson, to improve the worth and quantity of market goods and services remains a significant obstacle (“Budget 2013,” 2012). In the past, Malaysian SMEs have been struggling to expand beyond their national boundaries, so that they can compete internationally, especially in the current wave of globalization. For the SMEs in Malaysia, besides financial support, technological capability and market knowhow are necessary for apt global completion. Diverse criteria are used in classifying small and medium enterprises across the globe. In Malaysia, SMEs are grouped in terms of annual sales turn over, or by the number of employees employed on full time basis. According to (Hashim, 2012), among the key obstacles that Malaysian SMEs encountered include accessibility of finance, lack of skilled human capital, business competition, accessibility of technology and innovation infrastructure, and non-conducive government policies” (2012, p. 106). With the cost of raw materials having increased over the last few years, the SMEs operating in manufacturing, agricultural, and even the service sectors had to work under pressure, with what was available (Hashim, 2012). Although in the past the government has always given support to the SMEs, the recent 2013 budget portrays more hope to the business owners countrywide for their development on the country’s economic sustenance. The budget outlines the plans aimed at assisting the SMEs and other businesses. Some of these aspects include improving investments, minimizing taxation, pumping of more capital in the SMEs kitty and strategic initiatives to boost economic transformation in Malaysia. These incentives are aimed at propelling the country’s economy to greater heights by reducing poverty levels and improving the living standards of the Malaysian people. Financing for Companies Adequate capital for running and sustaining the SMEs is clearly addressed in the Malaysian budget 2013. It is the government’s commitment to finance the SME’s through financial corporations. This strategy is intended to reduce the financial constraints experienced by small and medium businesses (“Budget 2013,” 2012). The budget included the SME development scheme, which was allocated RM 1 billion. These funds were intended to catapult the financial operations of the Small and medium industries consequently enhancing business as well as the country’s economic status. In addition, the government proposed to set up a fund to be managed by the SME Bank. These funds are intended in aiding companies in need of financial support (Zakaria, 2012). The effort combines to fulfill the long strategic SME master plan, working towards implementing more SMEs initiatives and developmental programs, between then and 2020. Financial support will enable potential individuals and feasible plans to prosper within the country, leading to creation of more jobs for the population. The entrepreneurs who require capital for expansion, diversification, or for starting up a business, could access financial aid from the development scheme financial plan. Furthermore, diverse SMEs participants will benefit from the government collaboration with other organizations, in an effort to meet their financial needs (“Budget 2013,” 2012). The Islamic Development Bank and Perbadanan Nasional Bhd (PNB) will be working close with the government, towards Malaysian economic development plans. The governmental plan intended to be in use reinforces the will of SMEs owners, such that their effort will not choke large industries. Basically, the Small and medium enterprises act as the holders of the large industries and businesses; right from farming, supplying, and even to distribution of the raw materials that the large enterprises rely on, if not exported. It is notable that, in Malaysia, SMEs are essential to traders and service providers, to the primary industries, producers of finished products and services who contribute to enhance Agriculture, manufacturing and services, for instance, by means of value addition, output, exports and employment. The financial support will aid their growth, generally leading to the forecasted economic growth of 5.5 %. Production is expected to increase from large, small, or medium enterprises to exceed demand within the local population, creating more for foreign markets. The 2013 budget influences the SMEs positively in diverse dimensions. For instance, increased industrial output increases the demand for productivity. It is fundamental to note that, Pakatan Rakyat is committed to long-term policy of reducing dependency on foreign labour considerably. In addition, more than a million job opportunities have been created for the Malaysian people through the federal power under the federal government revenue, which has been increased up to RM 208 billion. On the other hand, the development expenditure, which stands at RM251.6, is forecasted to facilitate implementation of development projects, measures and programmes aimed at catapulting the SMEs consequently improving the well-being of the rakyat and national development (“Budget 2013,” 2012). SMEs are expected to utilize the finances as proposed in budget, and to improve the Malaysian economy through productivity. The purpose of financing is not limited to working capital, but spans across upgrading businesses and asset acquisition for smooth economic prosperity. Failing businesses will be revived, potential groups, especially the youth will be able to build on their ideas, and performing companies can expand into overseas markets. The society is left with choices, whether to use the available options for investment through financial institutions that is collaborating with the government, both for personal and economic growth, or continues sinking with their failing businesses. Tax and Non-tax Breaks The 2013 budget explicitly outlines the aspects of tax and non-tax breaks. This element is intended in promoting domestic investment. It is evident that, both the SMEs and large businesses will get tax breaks, which will contribute to more profits for the enterprises. The acquisition of foreign companies is being encouraged through government-reintroduced incentives. This is less expensive for the local SME’s for form amicable mergers. The mergers will create stiff competition in the market consequently creation of wealth. On the other hand, the local service providers are being spurred through special tax rate, to form partnerships and venture into bigger entities (“Budget 2013,” 2012). The country hopes to attract more investment through tax incentives from a local and foreign level, in order to increase revenue and the entire GDP. The investors will enjoy the lowered effective cost of investment, spurring the private sector stakeholders, young individuals, and innovations. Most of the small and medium enterprises just as in any other country seem to flourish in the first few years after venture, but their performance deteriorates afterwards, probably due to poor planning, management, stiff competition from well established firms or financial constraints. The owners end up spending a lot for little or no profits in the competitive market. However, with the tax incentives, SMEs could survive longer than before with most of the returns flowing as profits, rather than falling entirely as tax (Hashim, 2012). Entrepreneurs can be able to reinvest most of the money saved back into businesses, either by acquiring more equipment or stock. In addition, investment could enlighten the local enterprises on the reality of business in the global market and need for competition, to pushing them to offer quality products and services to the public. With the Halal industry fund, quality products that can compete in the market are expected, while the entrepreneurs could use the opportunity to create business mergers with other counterparts from Thailand and Indonesia. The Tax incentive for Global Incentive for Trading (GIFT) program has enhanced competitive local production of commodities such as refined raw materials, agricultural commodities, minerals and chemicals. This has immensely contributed to making Malaysia an international hub for commodity trading (Hashim, 2012). This means that hawkers, agricultural products, oil and gas, individual investors, sports, and entertainment sectors operating within the SMEs, will receive incentives in their area of economic and personal development. Apart from the tax waivers and tax benefits, the 2013 budget has included a forecast, which could see the private sector investment increasing to RM148.4 billion. Fundamentally, this forecast involves policies, programs and project initiatives intended to influence the SMEs positively in terms of expansion and economic development. It is evident that, the budget forecast on the private sector is a tool intended to catapult the SMEs into greater economic heights (“Budget 2013”, 2012). However, the SME’s in the housing industry are likely to be impacted negatively due to the government plan to construct affordable housing units. The public is expected to go for the government houses instead of the housing SMEs, which might be expensive. Furthermore, the small business owner’s risk of losses will be reduced once the implementation of the insurance coverage scheme becomes effective, which inspires many local investors who had their enterprises suffer in crisis. The tax and non-tax incentives touch on the lives of the average and below average citzens, which depend on small and medium enterprises. Inclusion of affordable housing plan, tax reliefs, and incentives on loan repayment, hope for private and public investment in Malaysia gains roots. The economic environment is quite uncertain, but with policies such as subsidies and tax incentives, SMEs will be cushioned against potential risks. Technology and Innovation The Malaysian 2013 budget has included RM 1 billion for domestic investment Strategic Fund. This fund is under the Malaysian Investment Development Authority. It is intended to control the outsourcing opportunities and intensification of technology acquisition by both large firms and SMEs owned by the Malaysian entrepreneurs (Hashim, 2012).The technological deficit, which inhibited the SMEs from competing in the same level with large enterprises, will be eliminated, as more support is channeled into creative knowledge based work. Some of the innovations dealing with intellectual property do not receive enough attention, despite being critical in the current trend of the global social economic drive. According to MDV (n.d.), the Malaysian 2013 budget allocations involves RM 200 million intended for IP financing scheme, to inculcate innovation and increase productivity. The plan further assists the SMEs to make use of their logical property rights in business, and as collateral to obtain funds for development (Hashim, 2012). There is quite a relation between Indonesia and Malaysia aiming at ensuring their society is erudite. They are both working on their visions and missions to improve ICT infrastructure, needed for competitive marketing in the global markets. Compared to Indonesia, as of 2001, the laying out of ICT infrastructure in Malaysia was much better, but the succeeding trend expressed a decline in attention towards technology advancement. Continuous investment in ICT infrastructure will contribute to the private sector investment that is expected to increase to RM148.4 billion. Consider the following chart indicating the competitive index of ICT infrastructure of Malaysia, Indonesia, Korea, Germany and Netherlands and between1997 and 2001. Courtesy of Digital News Asia. (2012, October 2). Industry Generally Upbeat about Budget 2013 The diagram illustrates the low level of ICT infrastructure in Malaysia compared to the other countries. However, the 2013 budget has given priority in developing ICT facilities to enhance rapid expansion of SMEs and the national economy as a whole. It is notable that, the budget plan will support SMEs in Malaysia to embark on the delayed installation of IT infrastructure to facilitate access internet services. The internet is critical in enhancing enterprise marketing. Most customers in the current global village do not have to travel to purchase products; instead, buying or selling is through a click of a button, where negotiations, marketing, adverts, and final transactions are done (Digital News Asia, 2012). Under the Malaysian investment Development Authority (MIDA), Green Technology Financing Scheme (GTFS), SME development scheme, and Youth Communication Package among others, the government has showed more effort in plans to ensure creativity, innovation, and knowledge based support in the nation (Digital News Asia, 2012). This is of immense benefit to the SMEs who rely on ICT, digital, and IP rights aspects. More businesses will be able to open up to better research and development activities via the internet, reach out to the consumers and access variety of markets for their goods. In conclusion, the Malaysian 2013 budget is a significant instrument in influencing the SMEs positively. The budget will ensure expansion of the SMEs in terms of productivity, competitiveness and operations. In addition, the aspect of tax and non-tax factored in the budget is fundamental in catapulting the local SMEs to greater economic heights consequently national economic growth (Digital News Asia, 2012). Furthermore, investment in ICT infrastructure forms the basis of rapid economic growth since it provides faster transactions and decision-making through the internet. In essence, the SMEs in Malaysia are impacted more positively than negatively by the 2013 budget consequently attainment of GDP of 1 RM trillion is possible by the end of the year 2013. References Budget 2013: Tax breaks, affordable housing and cash for the needy. (2012, September 28). Retrieved from http://thestar.com.my/news/story.asp?file=/2012/9/28/nation/20120928161303&sec=nation Budget 2013: Venture Company MDV to Launch Intellectual Property Fund for SMEs. Retrieved from http://www.mdv.com.my/v2/archives/news-post/budget-2013-venture-company-mdv-to-launch-intellectual-property-fund-for-smes Digital News Asia. (2012, October 2). Industry Generally Upbeat about Budget 2013.Retrieved from http://www.digitalnewsasia.com/digital-economy/industry-generally-upbeat-about-budget2013 Hashim, F. (2012). Challenges for the Internationalization of SMEs and the Role of Government: The Case of Malaysia. Journal Of International Business And Economy 13 (1), 97-122. Retrieved for http://Www.I-Jibe.Org/Achive/2012spring/5-Hashim%20%282012%29.Pdf Zakaria. S. H. (2012, September 28). Budget 2013 SMEs get a helping Hand. 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